THE BIDDING GAME: A special report; In Online Auction World, Hoaxes Aren't Easy to See

By JUDITH H. DOBRZYNSKI

Published: June 2, 2000

When eBay, the Internet auction company, suspended the seller and voided the sale of a vivid abstract painting whose price shot from 25 cents to $135,805 last month, his offense had nothing to do with the authenticity of the painting or the story he invented to go with the work.

Rather, the seller, Kenneth A. Walton, had entered a bid of $4,500 on his own offering -- a practice known as shill bidding -- on the second day of a 10-day auction, long before speculation that the painting might be by the renowned artist Richard Diebenkorn sent the price soaring.

But a close analysis of that and other eBay art auctions reveals that the flourishing cyberauction world faces a deeper, more intransigent problem than lone self-bidders: the prospect of rings of shill bidders, acting as partners. Mr. Walton, a Sacramento lawyer who used at least five Internet names selling and buying on eBay, appears to be just one of a circle of people who have engaged in cross-bidding activities that may have influenced the outcome of eBay auctions.

Starting with the list of people who bid in the $135,805 auction, and with the help of upset eBay users, The New York Times researched eBay's auction records and assembled a list of 33 Internet names that repeatedly bid on one another's offerings. The participants also encouraged other bidders by posting glowing testimonials to one another on eBay's vaunted feedback system, the comment forum where people write about their experiences dealing with other individuals on the site.

This week, after using proprietary software called ''shill hunter'' to review the list, eBay said it planned to warn two of the names and noted that 13 of them -- including Mr. Walton's -- had been suspended after the company's own investigations.

EBay declined to disclose why, citing privacy concerns. But that makes 15 user names that have been disciplined in the wake of the canceled auction.

No one knows how many rings are operating in the online auction world -- or, for that matter, in the traditional auction world, where the practice is generally considered illegal under business codes and many state laws.

But critics of eBay contend that the company's screening system is not fine enough to detect all ring-bidding.

The company acknowledged that it reviewed bids made only in the last 30 days, which may not be long enough to discern shillers who spread out their false bids.

It also conceded that those in the circle may have changed their bidding patterns in recent weeks, lying low to avoid attracting attention once Mr. Walton's auction began making headlines May 9.

Indeed, experts in the art world, academia and law enforcement say, the fact that the circle surrounding Mr. Walton would not have come to light without the media glare illustrates just how easy it is for people acting in concert to fly beneath the devices eBay uses to root out rigged bidding.

''We look for rings,'' said Robert Chesnut, eBay's associate general counsel. ''We have detected rings. But there is a limit to shill hunter. And there are things that look like shill bidding that are not.'' EBay will not divulge how many people it has expelled for shill bidding.

One thing is certain: Every day the opportunity for shilling grows. This year, sales in consumer-based online auctions in the United States are expected to more than double, to $6.4 billion, up from $3 billion in 1999, according to Jupiter Communications, a research company. EBay's share of the market -- more than 90 percent, Jupiter says -- dwarfs that of Yahoo, Amazon and other rivals.

At last count eBay had 12.6 million registered users. On any given day they place 1,000 bids a minute on the more than 4.5 million items up for sale. EBay, whose revenue is expected to double this year, to $400 million, views the transactions on its site as private: it does not vet the offerings or descriptions, though it does try to remove outright frauds.

Though eBay explicitly forbids shill bidding, company officials say they recognize that there will always a few bad apples in such a large community.

And nothing in eBay's rules prevents a person from using more than one Internet name. Nothing prevents friends from bidding on one another's offerings, running up the price, so long as the bid is sincere. Nothing prevents friends from posting nice comments about one another. It was only on March 1 that eBay began requiring those feedback comments to be related to actual transactions.

While online auctions are thus ripe for manipulation, tracing possible bidding collusion is extremely difficult. It involves sifting through and cross-referencing dozens of bidding histories and user feedback records, hours of work.

''This is Joe Public,'' said Delores Gardner, a lawyer who specializes in Internet fraud at the Federal Trade Commission. ''I'm not convinced that many people are sophisticated enough to detect shill bidding. It takes a lot of work, and it's not the type of work that a buyer should have to do.'' Most complaints to the commission have been about shoddy merchandise or failure to deliver the goods, not about bidding shenanigans.